Knowledge

The True Role of the CEO?

By Prof. Shlomo Maital

Let’s Get Back to McCabe Basics

What is the true role of the CEO? If you completed an MBA degree at Harvard Business School, MIT Sloan, Wharton, INSEAD, Stanford or any other leading school, within the past four decades, the answer is perfectly clear. Your objective is to make the maximum profit for your shareholders. Period! And since you will likely be CEO for a relatively few years, add the codicil: “maximum profit for the near term” — as in, “the next quarterly statement”.

If you dare give corporate money to charity, Prof. Milton Friedman will say that this is wrong you are giving away the money that rightly belongs to shareholders. In the era of militant shareholders, if you fail to bring short-term profitability, the Board of Directors will send you packing — and the CEO position has become a rapidly revolving door.

The result: Disastrous selfish short-term policies that turn out to be as ruinous for the company as they are for the nation in which the company is headquartered. CEOs have become expert at short-term policies that bring rising share prices tomorrow, but prove ruinous in the long run long after the CEO is gone and forgotten.

Once, things were different, in the pre-MBA era. My friend Clyde Prestowitz, author of The Betrayal of American Prosperity, worked for years for Scott Paper, and for its legendary CEO Thomas McCabe.

McCabe graduated from Swarthmore College in 1915 and fought as a Captain in the US Army in WWI. He joined Scott Paper when he was 26 and became CEO at the age of 34. He built Scott Paper from a single mill employing 500 people into a global giant employing 40,000, at 60 locations around the world. He retired from the Scott Paper Board of Directors in 1980, when he was 87! In other words, he served Scott Paper for 61 years, most of which he led the company. During World War II, he took time out to serve his country, not in combat but in management. After WWII he served a stint as Chairman of the Federal Reserve Board of Governors, the job Ben Bernanke currently holds.

Prestowitz recounts that McCabe had a plaque on his wall, about “whom we [managers] serve”. At Scott Paper, McCabe insisted, we first serve…. our clients and customers. Next, we serve our employees. Next, we serve our community, the neighborhoods, towns and cities in which we are located. Next, we serve our nation — the men and women and children of our country. And last, perhaps even least, we serve our shareholders.

Why last? Because, McCabe said, if you serve the other four groups of stakeholders well and truly, then you will also serve the long-term interests of your shareholders. Emphasis on Long-Term! The McCabe credo must have worked — look at what McCabe created, in applying it — a first-rate enormous global company.

Are there any CEO’s around that would dare to follow McCabe’s credo? Is there any way we can turn back the clock, to the McCabe era?

Would the world be in such deep hot water today, had its corporate CEO’s studied, memorized and implemented the McCabe credo?

Can capitalism return to its true roots, the McCabe credo roots, and reinvent itself in ways that fulfill its true destiny?

Can we please revise what we teach our MBA’s, to put shareholder profits last, rather than first?